The IMF warned that tokenization could make financial markets faster and cheaper, but also more exposed to sudden shocks and instability.
Tokenization involves moving traditional financial assets onto blockchain-based systems. While it can improve efficiency, the IMF said it may also increase the system’s sensitivity to disruptions.
“Frictions disappear — but so do buffers,” wrote Tobias Adrian, head of the IMF’s monetary and capital markets division, in a blog post.
In tokenized markets, assets such as stocks, bonds, and bank deposits are represented on shared digital ledgers. Smart contracts automate trading, transfers of ownership, and payments, enabling settlement in seconds rather than days.
By contrast, traditional finance relies on multiple stages—execution, clearing, settlement, and reconciliation—handled by different intermediaries, often taking two or more days to complete. Tokenization compresses these steps into near-instant settlement on a unified ledger.
Adrian noted that tokenization could also allow different forms of digital money, including tokenized deposits, stablecoins, and central bank reserves, to operate seamlessly as settlement assets. It may also enhance collateral mobility by allowing high-quality assets to be deployed more quickly across platforms.
However, the IMF stressed that these efficiencies come with meaningful risks.
Adrian explained that the delays removed in tokenized systems also serve as safeguards in traditional markets, giving banks, regulators, and risk managers time to identify and contain problems before they spread.
Without these buffers, market shocks, technical errors, or automated selling could propagate much faster, leaving limited time for intervention.
He added that liquidity demands could arise in real time, collateral calls could be automated, and failures could cascade at speeds that exceed the ability of institutions and supervisors to respond. Risks that were once distributed across balance sheets could become concentrated in the platforms and code that run these systems.
The IMF also highlighted concentration risk, warning that tokenized finance may gravitate toward fewer dominant platforms, where governance failures could quickly become systemic events.
Cybersecurity risks were another concern, with shared infrastructure increasing the importance of operational resilience and crisis management.
Finally, the IMF noted that regulation has not kept pace with technological change. Existing frameworks were designed for slower financial systems and may not clearly define ownership rights, settlement finality, or jurisdictional authority in tokenized markets.
Without clearer legal certainty, Adrian warned, tokenization could remain fragmented. He also cautioned that in emerging economies, faster cross-border flows could increase volatility, weaken monetary control, and heighten risks of currency substitution.
